How the smallest firms are getting the best out of ABS status

Legal News |9 September 2013

'A business as well as a law firm'

‘Diminution’ is not something most people know about. Even solicitors may wonder what it refers to. Stewart Fairhurst, a Northumberland solicitor, has made this field of personal injury law his speciality.

One of his biggest diminution damages victories involved an Aston Martin of exactly the kind driven by James Bond. The DB4 was damaged in a crash and repaired, but the owner was awarded £20,000 because the car was still worth significantly less than it would have been had no accident happened at all.

Fairhurst began as non-practising barrister, lecturing at Northumbria University, before working for Dickinson Dees and only later qualifying as a solicitor. Clifford James Consultants, a niche RTA diminution service, became an ABS on 1 April 2013.

Becoming an ABS allowed his wife, Emma, to become a co-director. It has also allowed the firm to provide non-legal services, such as vehicle disposal or scrapping.

“An ABS to me is about being a business as well as a law firm. Clients were losing a lot of money by disposing of their vehicles through insurers. For us, it was a way of saving them money and generating income.”

Fairhurst said Emma, who is also a minority shareholder in the firm, has a background in sales, initially selling Cadbury chocolate to shops but later managing an estate agents.

“She’s not here because she’s my wife, but because she’s very good at what she does and brings a lot of skills to the business that we need.”

On expansion, Fairhurst said the firm would not “go out looking” for external investment but would naturally consider any offers they could not refuse.

“With or without investment, we’ve done this ourselves and I’d like to keep it that way,” he said.

“An ABS structure allows us to invest in other law firms, and potentially in other areas of law. I see it more as a tool of expansion than inward investment.”

Nicola Phillips, formerly a sole practitioner in Horsham, Sussex, converted her conveyancing practice into an ABS a year ago and made her mother a partner. Phillips’ main concern was to keep access to lenders’ panels.

“As a sole practitioner, doors are shutting,” she said. “Some lenders like a two partner firm – others I’m still struggling with.”

Phillips said having an additional partner reduced the price of the firm’s indemnity insurance and proved popular with clients.

“Clients like to know there are two partners in case one of you is ill,” she said. “It’s bizarre.”

Phillips was “really pleased” the firm converted to an ABS, despite the work involved.

“The ABS application process is pretty tough, but it’s worth it,” she said. “My advice is to take it bit by bit – it took us six months.”

Phillips said the firm would soon be moving to bigger offices and appointing a new solicitor, who would hopefully become a partner.

“With three partners we could solve all our problems,” she added.

DR Solicitors in Guildford, Surrey, specialises entirely in work for GPs’ surgeries, dentists and other primary care providers – the only firm of its kind.

Formerly a sole practice led by Daphne Robertson, previously a solicitor at Freshfields and Hempsons, it became an ABS last month.

Nils Christiansen, a chartered accountant and former management consultant at PwC, became co-director.

“Our focus is on a sector which is full of small businesses. There are a few larger businesses but most surgeries are small businesses with three to four partners.

“They operate in a highly complex world with lots of regulatory issues, but without the compliance officers you might get in larger businesses.”

Like Fairhurst, he said it gave the firm the chance to provide other “innovative” services and resulted in plenty of “interesting conversations” with other organisations in the medical sector.

“Becoming an ABS means we can have conversations we did not have before.” Christiansen said the firm wanted to become bigger but that did not equate with expanding the management team or external investment.

“It’s a question of making the most of your client base and providing other services which they find valuable.”

Christiansen said ABS status was “at least of equal interest to small firms”.

“It allows innovation which was simply not possible. We were talking about this 20 years ago when I was qualifying as an accountant. Now it has finally happened.”

ABS as a 'badge of quality'

Chris McGrail, a sole practitioner in Thornbury, south Gloucestershire, said those outside the law regarded ABS status as a “badge of quality”.

His firm, Alan Hodge Solicitors, a general civil practice, became an ABS earlier this month.

Like many others, McGrail did not rule out external investment, but said it was not a priority.

“Being an ABS has become a badge of quality for those outside the profession that people can understand,” he said.

McGrail said it was also a “statement to our staff and clients and people in the surrounding area that we will be here in the future”.

He continued: “Becoming an ABS was a big investment in time and energy and it’s not something you do if you’re not going to stay on the scene.”

McGrail’s wife, the practice manager, becomes a co-director. McGrail is the COLP and COFA. The firm currently employs one solicitor and wants to recruit another.

McGrail said the firm’s current strength was in work for private clients, whether probate, family or conveyancing, combined with work for SMEs, which he wanted to expand.

“We believe all the areas we are involved in are solid areas of work for solicitors in the high street. If the work is done to a high professional standard these areas of work will continue to grow.

“Our firm will get bigger as other firms drop out of the market. There is competition, but there is competition in every part of the business world.

“Big firms may sell things at a cheaper price but people who value their solicitor and a good personal service will be there for us.”